Assigning a contract

There may be situations where one party wishes to leave a contract and transfer their role to a new, incoming party. Transferring a contract from one party to another is known as ‘assigning’ a contract or ‘an assignment’ of the contract, in England and Wales and ‘assignation’ of a contract in Scotland.

A contract will usually contain provisions concerning assignment. The contract may:

• prevent any assignment

• allow an assignment but only by agreement between the parties

• allow either party to assign to any new (third) party whenever they wish

If the contract is silent on the subject, it is better to obtain the agreement of the existing parties before assignment takes place and a new party is introduced.

An assignment ends one party’s involvement in the contract and transfers all of their contractual rights, benefits and interests to a new party. 

Unless an assignment is prohibited in a contract, the outgoing party may assign their rights to the incoming (third) party without the consent of the other party to the agreement. A Letter of assignment can be used to affect the assignment and is signed by the outgoing party and the incoming party.   

It contains special provisions to transfer all of the rights and benefits under the contract to the incoming party. 

However, in practice, the assignor will usually subcontract, or delegate, their obligations under the contract to the assignee. This means that the assignee will assume the performance of the contract with effect from the assignment, and the assignor will ask to be indemnified against any breach or failure to perform the contract by the assignee.

The signed Letter of assignment is sent to all existing parties. Stakeholders, such as banks or customers, are also notified of the change.

A novation agreement transfers both the benefits and the obligations of a contract to a third party. In contrast, an assignment does not transfer the burden of a contract. This means the outgoing party remains liable for any past liabilities incurred before the assignment.

For more information, read Novating a contract.